Barclays’ stock dives as New York attorney general hits bank with dark pool lawsuit

26th June 2014

Barclays’ reputation is on the line again as it now faces a lawsuit brought by the New York attorney general for allegedly misleading investors into so-called ‘dark-pool’ investing.

According to attorney general Eric Schneiderman, the UK lender dramatically increased the market share of its dark pool by falsifying statements to clients and investors about how its operates. By 9:55am, the bank’s shares were down 5% or 12.04p at 217.96p.

In a statement, the attorney general said that contrary to Barclays’ claims that it had put in place special safeguards to protect clients from “aggressive” or predatory high-frequency traders, its dark pool operation favoured high-frequency traders.

Dark pools are essentially private systems where dealing can be conducted without traders having to reveal their identity.

“The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit,” Attorney General Schneiderman said. “Barclays grew its dark pool by telling investors they were diving into safe waters. According to the lawsuit, Barclays’ dark pool was full of predators – there at Barclays’ invitation.”

The US office claims Barclays heavily promoted a service called Liquidity Profiling, which it claimed was a “surveillance” system that tracked every trade in its dark pool in order to identify predatory traders, rate them based on the objective characteristics of their trading behaviour, and hold them accountable for engaging in predatory practices.

The complaint alleges that:

Barclays has never prohibited any trader from participating in its dark pool, regardless of how predatory its activity was determined to be;

Barclays did not regularly update the ratings of high-frequency trading firms monitored by Liquidity Profiling;

Barclays “overrode” certain Liquidity Profiling ratings – including for some of its own internal trading desks that engaged in high-frequency trading – by assigning safe ratings to traders that were otherwise determined to be toxic.

Commenting on the allegations, a Barclays spokesman, said: “We take these allegations very seriously. Barclays has been cooperating with the New York Attorney General and the SEC and has been examining this matter internally. The integrity of the markets is a top priority of Barclays.”

The attorney general’s move follows the bank’s June 2012 fine for Libor rigging, which saw then chief executive Bob Diamond leave the business, who was succeeded by Antony Jenkins.